Accounting For Managers Of Governance-Legislation Update

Depreciation methods

Describe about the Accounting for Managers of Governance-Legislation Update.

Accounting is the essential part of managing an organization, it is defined to be the process of recording the financial statement, recording, classifying, verifying, summarizing, interpreting and communicate the financing information of the company. The primary purpose of the paper is to define the main function of accounting in a business enterprise, it will explain the relationship between accounting and management in an organization. Many business organization uses different methods of accounting to perform their financial management, the study will elaborate on various methods of accounting and the reason as to why different companies may prefer to use them as part of their financial management strategies.

Depreciation methods

Depreciation is part of the accounting in operating business organization, it elaborated on the functionality of tangible assets in relation to their economic life within the organization. Depreciation is defined to be the permanent and continuing reduction in quality, quantity as well as the values of the asset (Brigham, and Ehrhardt, 2013). The main purpose of depreciation in accounting is to indicate on how much the company assets have been used and how the remaining value could be utilized in order to achieve the company objective by increment in profitability making.

The economic gains of company A have been realized steadily over the four-year period by adopting the straight-line method of depreciation and this will be the same in the later years. Since returns of an asset cannot be forecasted over its useful life, it has enabled company A to make financial decisions appropriately both in the short-run and in long-run (Titman, Keown, and Martin, 2015). From its inception company B has been making little gains because of the high depreciation charged on its assets. Since they adopted the double down method most of the depreciation expense has been charged in the few years of its operation. Ultimately gains will be realized afterward (Crosby, 2015).

Choice of depreciation method depicts the financial returns of a company. It is important to scrutinize if either the asset is to be used proportionately in its lifespan or it will be used often in the initial period. Double declining method results to low gains in income of a company its initial stages thereby making companies adopt the use of straight line method.

Financial statements contain detailed information which creditors and investors rely on to make investment choices. It requires knowledgeable know how to value risk in order to predict the economy in the market (Shafer, W.E., 2015). The three financial statements are income statement, balance sheet and statement of cash flows.

Company financial statements

Depreciation on income statements are dealt with as expenditures and are not to be ignored as they are deducted. They are shown together with the expenses incurred during that financial year. The preceding year depreciation is summed up with the current expenses in order to maintain accumulated depreciation that is equivalent (Henderson, Peirson,  Herbohn, and Howieson, 2015).

The asset value in the statement of financial position is displayed against liabilities and equity gains. Depreciation is arranged in the same column with assets. Depreciation causes capital assets to depreciate in value so they are arranged in the same column with assets (Wuttke, Blome, and Henke, 2013). The book value obtained enables one to have a clear look at the value the asset has lost.

When cash flow budget is prepared depreciation is considered to be a reduction from expense which shows no effect in the financial statement. Depreciation becomes an allowable expense when taxable income is calculated and this reduces taxable income the company is to pay (Shafer, W.E., 2015).

Therefore, depreciation is an essential element which has create impact to the financial recording of the company, the depreciation balances are treated as the expenses in financial statements of the company. They should be well embraced as well as considered to be vital factor of determining the companies’ financial performance (Weil, Schipper, and Francis, 2013).

Capital finance of the company

The achievement of organizational goals is determined by the capital financial structures which are installed by the management. The capital financial structure is an essential part of company management which obligates shareholders and the top management to discuss in order to make a perceptive conclusion while designing the capital structure of the company (Peirson, Brown, Easton, and Howard, 2014). The financial objectives of business vary depending on the size of the firms, large firms requires a large capital structure in order to achieve its primary objectives. On the other hand, small business enterprises are considered to require small financial and capital structure as the basis of accomplishing its prime missions (Colombo, Cumming, 2016). Therefore, the financial structure is defined to be the balance between all the enterprise liabilities and its equalities, implies the use of equity and liabilities while evaluating the financial position of the company, basically, it comprises the equities and long-term liabilities of the company

Kangaroo Express Company is one of the companies which has the potential of becoming big and large business company. The company is a family owned business organization with strong wave of increasing in its sizes by implementing the substantial financial and capital measure which will require the collaboration between the top management and the stakeholders (Crosby, 2015). The top management should play their role by advising the shareholders on the alternative ways of financing the company in order to increase its capital structure.

Capital finance of the company

Smart leasing

Kangaroo Express Company capital structure is well determined, the company is comprehended to have a large percentage of assets, and 60% of the company capital is non-current notes. Smart leasing comprises leasing out the company properties to be used by other operating companies. The leasing rate is considered to be high compared to loans rates which are offered by the banking institution.  However, risks limit the operations of the company in relation to the leasing process (Henderson, Peirson, Herbohn, and Howieson, 2015). Reduction in return for equity holders is one of the associated risks which may affect the operation of the company.

Angel equity

Angel equity is defined to be the process which the management of a business entity allows investors to invest into their company by offering a good amount of money. It is one of the best financing measures which the company needs to adopt in order to get more profits as well as increasing its capital structure and size (O’Fallon, and Butterfield, 2005). Kangaroo Express Company should adopt the angel equity which offers flexible business agreement between the investors and shareholders. Consequently, angel equity may also not be considered as an alternative financing approach since some of the investing activities may be costly and well as other investors becoming dubious about the company.

Home equity loans is an alternative method of increasing the capital to the company, home equity loans allows the company to  access finance from the equity they have built in their home (Peirson, Brown, Easton, and Howard, 2014). One of the advantages of home equity loan reduces the company liabilities and thus increases it profit making. Payment default is one of the primary risks associated with home equity loans.

Problem 3

Role of ethics in managerial accounting

Business ethics are defined to be set of principles which govern the behavior of the company in terms of its management, it governs the moral aspects of the business organization. Ethics in business applies the general aspects of business conducts as well as its relevancy in conducting the entire business enterprise (Colombo, Cumming, 2016).

Decision making in accounting requires the essentiality of embracing the significant ethics which will be used as the basis for developing a collective decision-making process. The role of ethics in managerial accounting is used in determining the business financial operations and thus becoming the pertinent aspect in accomplishing the organization goals and objectives (Ferrell, O.C., and Fraedrich, J., 2015).

Misconceptions

Misconceptions is defined to be the process making an opinion which is not consistent because of misunderstanding. Ethics in relation to managerial accounting implies how the financial department of an organization can handle unethical issues which may arise as a resulting misunderstanding (Harrison, and Van der Laan Smith, 2015). The managerial accountants have to work in accordance with the legal procedures as well as the financial management frameworks which allow the company to achieve its strategic goals and objectives.

Function

Managerial accounting ethics plays a prime role in ensuring that all individual who are involve in collecting accounting data performs their function in accordance to the moral standards of the company . Financial departmental employees who fail to report information or on the other hand use the internal financial information of the company for personal gain can create serious legal situations for businesses (Harrison, and Van der Laan Smith, 2015). Company stakeholders and shareholders often require the data and information, whether which is positive of negative in order to obtain the relevant result while making financial managerial decisions. However, the managerial accounting ensures that all the employee who works in the company are trusted with a sensitive business information (Ferrell, O.C., and Fraedrich, J., 2015).

Company financial statements

Financial statement of are considered to be the essential records that show the financial operation of the business organization. While selecting the business partners as well as developing a business agreement, one of the key areas which need to be observed is the company operations with the reflection of the financial statements (Brigham, and Ehrhardt, 2013).

Managers and shareholders require financial statements to settle on essential business strategies which will enhance the accomplishment organization core values. The budgetary examination is then performed on these announcements to furnish administration with a more itemized comprehension of the figures. These announcements are likewise utilized as a component of management’s annual report to the stockholders (Brealey, Myers, Allen, and Mohanty, 2012). Planned speculators put forth utilization of budgetary expressions to survey the suitability of putting resources into a business. Budgetary investigations are regularly utilized by speculators and are set up by experts, along these lines giving them with the premise to settling on investment decisions (Amiram, Bozanic, and Rouen, 2015).Financial statements are in some cases not reasonable, important, solid and practically identical. Reported resources, liabilities, and value may not be specifically identified with an organization monetary position.

The mandate of the organization executive is to observe the performance of the intended supplier as stated by the trusted financial records. Suppliers in the market might be the reason as to why business organization fails to operate fully in the market. Suppliers in their records have shown a brilliant financial performance which is the key factors of accepting their products and services, only to realize that the information provided by records is manipulated to (Brealey, Myers, Allen, and Mohanty, 2012). Some of the suppliers may fail to provide accurate information regarding their operation in the market, this limits their operation as well as those of key players in the markets.

While judging the suppliers, their consistency in the supply of products and services in relation to their performance for the past years will be the basis of judging their operations. To avoid the cash flow problems, auditing products and services of the company will reduce the insufficient margins which arise as a result of low prices to goods and services provided (Arnold, 2014).

After auditing the prices of products and services, suppliers and the organization management should evaluate their performance by embracing their concern towards increasing their profitability making (Christensen, Floyd, and Maffett, 2015). The audit opinion whether the supplies have better financial performance and have a consistency of supplying the appropriate products, this will be used to determine the whether they could attract the additional capital growth and development (Arnold, 2014).

Reference

Amiram, D., Bozanic, Z. and Rouen, E., 2015. Financial statement errors: evidence from the distributional properties of financial statement numbers. Review of Accounting Studies, 20(4), pp.1540-1593.

Arnold, G., 2014. Corporate financial management. Pearson Higher Ed.

Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P., 2012. Principles of corporate finance. Tata McGraw-Hill Education.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Christensen, H.B., Floyd, E., Liu, L.Y. and Maffett, M.G., 2015. The Real Effects of Mandatory Non-Financial Disclosures in Financial Statements. Available at SSRN 2680296

Colombo, M.G., Cumming, D., Mohammadi, A., Rossi-Lamastra, C. and Wadhwa, A., 2016. Open business models and venture capital finance. Industrial and Corporate Change, 25(2), pp.353-370.

Crosby, A., 2015. CRLR and DRDLR-annual reports and financial statements: good governance-legislation update. FarmBiz, 1(10), pp.29-29.

Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson Education.

Harrison, J.S. and Van der Laan Smith, J., 2015. Responsible accounting for stakeholders. Journal of Management Studies, 52(7), pp.935-960.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

O’Fallon, M.J. and Butterfield, K.D., 2005. A review of the empirical ethical decision-making literature: 1996–2003. Journal of business ethics, 59(4), pp.375-413.

Peirson, G., Brown, R., Easton, S. and Howard, P., 2014. Business finance. McGraw-Hill Education Australia.

Shafer, W.E., 2015. Ethical climate, social responsibility, and earnings management. Journal of Business Ethics, 126(1), pp.43-60

Titman, S., Keown, A.J. and Martin, J.D., 2015. Financial management: Principles and applications. Pearson.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Wuttke, D.A., Blome, C. and Henke, M., 2013. Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management. International Journal of Production Economics, 145(2), pp.773-789.